State funds lose $26 million in Enron collapse

Posted: Wednesday, January 23, 2002

ANCHORAGE (AP) -- Three big Alaska public funds lost a total of about $26 million in recent months from the collapse of energy company Enron Corp.

The Alaska Permanent Fund lost $12.8 million. And the state's two biggest pension funds -- the Alaska Public Employees Retirement System and the Teacher Retirement System -- together lost about $13 million, officials said.

Bob Storer, executive director of the Alaska Permanent Fund Corp., said the state will join a lawsuit to recover a portion of its losses, claiming Houston-based Enron withheld information about its financial position.

The stock price of Enron soared in recent years as investors were dazzled by the results of the company's new-styled energy trading business.

The stock was worth about $82 a share one year ago. Then it began a gradual decline. As word spread about hidden debt and mounting losses, the stock went into a tailspin, falling below $1 a share this month as the company sought bankruptcy protection.

Like many investors, the Alaska public funds got caught in this downdraft.

The $12.8 million the Permanent Fund lost last year on Enron compared with a $12.4 million annual profit the fund saw in recent years from its Enron investment, Storer said.

Last year's Enron losses amount to a pittance to the fund, which owns stock in 4,000 companies, said spokesman Jim Kelly. But the Enron losses translate to about $2 lost to Permanent Fund dividend checks, he said.

After accounting for profits from its Enron investments in recent years, the state's retirement portfolio for public employees and teachers lost about $2 million, said John Jenks, chief investment officer for the state treasury.

The $11.7 billion retirement portfolios held about 272,000 Enron shares last June, he said, down from 414,000 a year earlier. That was about 0.1 percent of their total holdings, Jenks said.

Seven firms hired by the state to manage retirement assets held stock in the energy company, Jenks said.

''Some made money, some lost money,'' he said.

One of the firms that made money for the Permanent Fund was Anchorage-based McKinley Capital Management.

Bob Gillam, chief executive of McKinley, said the firm was attracted by Enron's expanding growth rate.

McKinley bought 105,000 Enron shares in December 1999, Gillam said. When analysts began warning of slowed profit growth and the stock began a series of volatile ups and downs in October 2000, McKinley began to sell. By last February, Gillam liquidated the entire Enron stake, making a total of $3.4 million.

Enron's spectacular collapse is a lesson in why portfolios must be diversified, Jenks said.

''It was a tragedy for Enron employees who didn't have diversified portfolios,'' he said. ''Fortunately no Alaska retirees will know this ever happened in a sense. This will have no effect on them.''